BlackRock Sued by Funds Over Securities Lending Fees

BlackRock Inc. (BLK), the world’s biggest
money manager, is accused in a lawsuit by two pension funds of
reaping “grossly excessive” compensation from securities-
lending returns associated with iShares Inc.

“Defendants have systematically violated their fiduciary
duties, setting up an excessive fee structure designed to loot
securities lending returns properly due to iShares investors,”
the funds, which invest in iShares, said in a complaint in
federal court in Nashville, Tennessee.

Investment funds with holdings in stocks or other
securities can earn more by lending out their holdings to
borrowers, including short sellers, those betting the value of a
security will fall. Investors who lend out the securities divide
the proceeds with a securities lending agent. Some funds,
including BlackRock, use their own securities-lending operation.

“Our securities lending program has delivered above
average returns to our ETF shareholders over time,” said
Caroline Hancock, a BlackRock spokeswoman, in an e-mailed
statement. “To achieve this, we run the program ourselves
while bearing all the costs, rather than outsourcing to
third parties as others do.

Also named are BlackRock president Robert Kapito, Michael Latham, the chairman of Ishares Inc., and seven other officials
of whom are trustees of iShares Trust and directors of iShares
Inc.

The pension funds, in the suit filed Jan. 18, seek
financial penalties including unspecified damages and a ban on
lending of iShares securities “absent a fairly and openly
negotiated contract between iShares or individual funds and an
independent lending agent.”

The Financial Times earlier reported on the lawsuit.

The case is Laborers Local 265 Pension Fund v. iShares
Trust, 13-cv-00046, U.S. District Court, Middle District of
Tennessee, (Nashville).